Overview of ERP

An Enterprise Resource Planning (ERP) system is an information system that is implemented throughout an enterprise with the objective of making information accessible to everyone within the organization in real-time. These systems are designed to integrate all areas of the enterprise including financial accounting, sales, distribution, inventory, and human resources, and thus improve the performance of the organization in terms of resource planning, management control, and operational control.

            

ADVANTAGES

There are many advantages associated with an effectively implemented ERP system. Typical advantages include:

• Significant cost savings
  
• Valuable time savings – speeding up all areas of the business process
  
• Accessible information throughout an enterprise in real-time
  
• Gives managers and senior executives the ability to monitor activity, strategically plan, and make timely decisions, particularly in global organizations
  
• Automates business activities in each area of the enterprise
  
• Improving design and engineering practices
  
• The process of tracking purchase orders and shipping products to customers (what was ordered, what arrived, what the seller invoiced)
  
• Improved finance and accounting activities – by integration of cost, profit, and revenue information and improved presentation of this information [3]
  
• By tracking products and sales, managers can realize which products are successful and which products they need to improve/ redesign
  
• Improved security against employee crimes
  
• Creates a competitive advantage over competitors not using ERP systems
  

 DISADVANTAGES

Although there are many significant advantages of ERP systems which contribute to competitive advantages and great success, there are also many disadvantages or downfalls. The biggest disadvantage of ERP systems is they can be very difficult and costly to implement and integrate into a large organization. Implementing a system requires a considerable amount of time and financial investment due to on-going training for all employees and it can take a long time to effectively integrate the system. Due to high costs ERP systems have been used mainly by very large organizations but with recent improvements in ERP software and trends towards needs based applications ERP is being used more frequently by medium and small sized organizations. [4] Another difficulty is that the success of the system relies on the employees using the system properly and with accurate information. [3] It can be very expensive to train the whole organization to use the ERP system and failure to do so can result in devastating financial losses to the organization. Another disadvantage of ERP is the lack of customization options. When adopting a new system you want to avoid customizing because it is difficult, timely and expensive.

STEPS TO IMPLEMENTATION

Implementing an ERP system can be a difficult and expensive process and unsuccessful attempts have been extremely costly for some organizations in the past. There are many detailed steps required for effective implementation and professional experience is highly recommended. However, the following 6 steps provide a basic framework and starting point for a successful ERP implementation.

Step 1 – Define Success and Planning

This starting point is often the key to success. First you must establish the problem you are trying to solve or what you want to achieve from implementing ERP. Do you want to improve inventory control? Do you want to speed up delivery? Do you want to automate business practices? And will these improvements contribute to increased profits and future growth? You also need to develop an implementation team, plan the project, and establish all the necessary steps to complete the project. A consultant or an ERP professional is highly recommended.

Step 2 – Set Priorities

During ERP implementations there will be countless problems discovered but due to complexity and high costs of ERP you need to set priorities and focus on the most important issues. It is also important to implement new systems step-by-step to prevent overloading managers and users with too much information when learning the ins and outs of the new system. Generally you want to begin the implementation with the core functions of your business and solidify those practices.

Step 3 – Avoid Modifications

This step is easy, avoid modify the source code of your ERP application software. You should be able to choose the right ERP software to fit your organization in terms of size and complexity so that you do not need to modify the code of the software. There may be pressure from employees to change the program to make it easier for them or make it more like the previous system used. However modifications are extremely costly and time consuming and rarely improve functionality.

Step 4 – Prepare for Change

Implementing an ERP system is a big change for your staff, customers, and suppliers. It is necessary to prepare everyone involved for the change, especially the managers and end-users of the product. Employee resistance can be harmful to the new system and your business so it is important to properly train all users with hands-on experience and plan for a smooth transition. Also it is necessary to have good communication and make it clear that the new system will contribute to greater success of the company and can provide better opportunities for them in the future.

Step 5 – Gain Executive Support

Executives support is crucial for adopting an ERP system. Executives need to ensure strategic alignment with the organizations goals and values. They also need to be actively involved in the implementation to motivate employees and reduce employee resistance. To gain executive support it is recommended to conduct a professional analysis of the company and coordination of the ERP system to be implemented in order to clarify the benefits of the new system. 

Step 6 – Budget Dollars and People

An ERP project can be very expensive and a planned budget is necessary. But more importantly having the right people and expertise to guide the project will determine your success. You can find people within your organization that obtain the right skills and knowledge or you can recruit an external project manager to commit to the implementation process. These candidates must be fully committed to the success of the project and they must obtain the right skills and industry knowledge to complete the implementation.